What are ETF’s ? and Why so Popular?

ETF stands for exchange traded fund. According to Investopedia ETF is valued at over $1 trillion assets under management. This financial instrument is often seen as a cheap and safe investment. I am a big fan of ETF’s and think that it’s a safe bet to make because it limits your exposure but you should still do your homework to figure out what works for you. According to Investopedia “The idea of index investing goes back quite a while; trusts or closed-end funds were occasionally created with the idea of giving investors the opportunity to invest in a particular type of asset. None of these really resembled what we now call ETF’s, though.The first real attempt at something like an ETF was the launch of Index Participation Shares for the S&P 500 in 1989. Unfortunately, while there was quite a bit of investor interest, the Chicago Mercantile Exchange sued to stop them and the advent of true ETF’s had to wait a bit.It wasn’t a long wait, however; the first ETF began trading in January of 1993. The S&P 500 Depository Receipt (called the SPDR or “spider” for short) was the first of its kind and is still one of the most actively traded ETF’s today. Although the first ETF launched in 1993, it took 15 more years to see the first actively managed ETF to reach the market.” ETF funds are in almost every sector. The largest is the S&P SPDR ( which follows a group of stocks on the S&P index), the second is SPDR Gold Shares with $73 billion in assets under management, the third is Vanguard MSCI Emerging Markets ETF, another ETF is PowerShares QQQ (NYSE:QQQ) mimics.

One of my favorite ETF is IAU, what is so great about IAU ? you can follow the price of gold at a relatively cheap price and since gold is a very good foundation for every portfolio, you win. Another favorite ETF is EWM which follows some companies in Malaysia, EWJ exposes you to Japan, CVY is good for dividends, LIT exposes to lithium power.

But don’t go out there and get all ETF’s, according to Investopedia you should still be cautious they go on to say that Mutual funds are key offerings in retirement and pension funds and some fund plans do not even allow investors to buy or hold individual securities like ETF’s. Mutual funds also offer active management and that is a key advantage to many investors; passively managed funds can only match a given index and reduce investing to strategic allocation decisions. Actively managed funds, though, can offer market-beating performances that accumulate significantly over time. While actively managed ETF’s could chip away at this advantage, it will take considerable time.

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